This is a rush transcript from "Your World With Neil Cavuto," May 18, 2010. This copy may not be in its final form and may be updated.

NEIL CAVUTO, ANCHOR: All right, to Arkansas now, where Democratic Senator Blanche Lincoln is getting it from both sides, as she tries to avoid a runoff election. It may be easier said than done.

Lincoln is widely viewed as a moderate. So is my next guess, Indiana Democratic Senator Evan Bayh.

Senator, if — if Blanche Lincoln is in trouble, is this a sign that moderates, maybe of both stripes, are in trouble?

SEN. EVAN BAYH D-IND.: Neil, it’s not easy being a moderate these days. You do tend to get fired at from both sides.

And the bases of both parties are increasingly intolerant of any deviation from party orthodoxy. And I think that’s what got Blanche in trouble. Some of the folks in organized labor went after her because of her position on the card check issue.

And I think they’re really trying to send a message to the others that, you know, look, if you don’t go along, here’s what you’re going to get.

CAVUTO: What do you think of this whole litmus test idea, whether it’s the service union workers who are giving Blanche Lincoln some hell in Arkansas, or, on the other side of the ledger, the Republicans and the Tea Partiers who put a lot of Republicans through a litmus test of their own, saying, you know, you have to be against the bailout, against this rescue, and on and on and on?

What happens if each side then gets their respective winners on the extreme left, on the extreme right?

BAYH: Well, progress tends to take place in the middle, Neil. And I think that’s where most Americans are.

The irony is that the political process is tending to produce results on the far right and the far left, which leads to further gridlock, to answer your question. And, in ordinary times, that might be OK, but, with the kind of challenges that face America today, the real need to move forward or to address the issues that we face, we can’t afford gridlock.

And so I’m afraid that we need to try and reconcile some of our differences, agree where we can, not just sell out, but at least try and get done those things where there is some common ground. Regrettably, that’s not happening much in Washington these days.

CAVUTO: Well, there might be some common ground on this financial reform issue that is, I know, near and dear to you before you leave the Senate, indications from Harry Reid and others that anywhere from five to seven Republicans are on board for it. Of course, the devil’s in the detail. But are we going to get that done in this congressional session?

BAYH: Yes.

I think that there will be a financial reform bill passed, Neil. Whether there are five or seven Republicans who will support it ultimately, I don’t know. But that would certainly be an encouraging sign.

It’s very complicated. We’re working our way through it. Lord knows, after the kind of financial crisis that we have had, that it’s been a body blow to the real economy and costs millions of jobs, we can’t afford to have a repetition of that. So, maybe it takes a crisis like that, Neil, to get both sides to wake up and work together. It shouldn’t, but perhaps we can take that — those lemons and make some lemonade out of it.

CAVUTO: But I’m wondering what kind of lemonade we might be coming up with, sir.

And, to that end, we know now that Freddie and Fannie, the two housing lending agencies, will not be included in this financial reform. Also, that $50 billion bank reserve fund where they finance I guess their next funeral, that won’t be in there.

So, what will? Will this thing have any teeth in the end and will it be addressing what many argue are the original culprits, as I said, Fannie and Freddie?

BAYH: Well, Neil, you may know this already, but you’re speaking to one of only two Democrats who actually voted with Senator McCain for his amendment to begin the process of doing something about Fannie Mae and Freddie Mac.

I do think that that’s a real soft spot in this legislation. It’s a big problem that is just not being addressed. And I think we should address it. So, I have a little bit different view on that.

But, look, no legislation is perfect. But I — to answer your question directly, I do think this will have some real teeth in terms of trying to stop too big to fail, in terms of putting into place a resolution mechanism to wind up organizations of that size that do get into trouble.

There will be some things to protect consumers, some things to hopefully allow companies to engage in derivative transactions, but not be so leveraged that they imperil the entire economy. So, I do expect that it will have real teeth, Neil. Will it be perfect? No. Will there be things that you and I would look at and say, I wish that weren’t in there? Yes, I suspect there will.

That’s why we have to come back and continue to try and prove it in the future.

CAVUTO: Senator, if you don’t mind my asking, finally, on the elections today, do you think they’re an indictment against big spending, big bailouts, big rescues, that anyone, Republican or Democrat, behind them is toast?

BAYH: There’s no question in my mind, Neil, that the American voters, particularly independents and moderates, are really gravely concerned about the size of the deficit, the increasing national debt, and the overspending in Washington. There’s no doubt in my mind.

And if there’s an anti-incumbent result in the elections tonight and in November, I think a lot of it is going to be because both parties didn’t — weren’t aggressive enough in trying to deal with the spending debt and deficit issues. We really need to move on that, so that we don’t become another Greece or another Argentina.

CAVUTO: Senator Bayh, it’s always a pleasure. Thank you very much.

Content and Programming Copyright 2010 Fox News Network, Inc. Copyright 2010 Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.